Life-saving service is a godly service, now a business thriving on the affordability of the burgeoning middle class and growing medical insurance policy-buyers. Thrown upon the choice between the price of life and the cost of pocket, everyone chooses the latter. Modern hospitals require huge investments to equip themselves with the most modern diagnostic and disease management systems. Investments are not charitable decisions. When patients expect better service with early recovery and painless treatment, investors expect a better return on their investments. Doctors are sandwiched between these two segments.
India’s healthcare sector remains attractive to investors due to the significant demand-supply gap. People require better hospitals and are willing to pay for a healthier life, though the urban poor are deeply dismayed by the inflated cost of treatment and hospitalisation. The scenario of ‘patients do not know what doctors know’ and ‘patients cannot neglect the doctor’s opinion’ often leaves the financially disadvantaged section confused and disappointed. They find that depending on the public healthcare system for treatment is troublesome due to the heavy rush and poor sophistication, even though government hospitals have better-qualified doctors. For the middle class and above, with sufficient insurance coverage, branded hospitals are a safe destination. At the same time, insurers burn their fingers, making them stringent in approval. Still, they approve the bills of branded hospitals, which have their tariffs in line with the insurer’s acceptance, provided the insured ones have sufficient coverage.
The middle class is now rushing to buy medical cover. Medical insurance comes tax-free. For others, the cost has come down now. Currently estimated out-of-pocket expenses (OOPE) stand at around 39 per cent, which was 63 per cent 10 years ago. This indicates more and more people are buying health policies, fearing the rising cost of hospitalisation. Of the total health expenditure, nearly 50 per cent comes from the government health expenditure, which was 29 per cent a decade ago. A major part of the business that branded hospitals generate is from the insured patients, since out-of-pocket spending patients cannot afford the services of branded hospitals. Others depend on the big private hospitals out of necessity. Even this category of patients is also on the rise.
Trust is high in branded hospitals because of their cutting-edge technology for faster diagnosis and efficient disease management. Networked hospitals offer great operational synergy. However, there is also concern about a commercial approach in healthcare that overlooks the necessity of substantial investments in quickly depreciating assets and the high cost of capital needed to establish advanced diagnostic and disease management frameworks. Branded hospitals equipped with a high level of technology cannot deliver low-cost service, as the management is under pressure to recover the cost before the life of the medical equipment is over.
For example, a high-end catheterisation lab (cath lab) with a hybrid operating room requires an investment of ₹10 crore to ₹30 crore. The maximum lifespan of the lab is eight years. A cardiology centre with a fully equipped bypass surgery operation theatre requires an investment of around Rs 25 crore. The capital cost of hospitals is prohibitively high, which an average doctor or a team of doctors cannot easily fund. Here comes the private equity investment with conditions to generate a particular level of revenue. Doctors will have to shoulder the challenge and keep every equipment and medical and paramedical divisions, including pathology, radiology and pharmacy, generating revenue, much to the unrest of patients. But there is an advantage of getting technology-driven services, which reduce pain and duration of hospitalisation. That definitely helps patients save on their costs with the hope of faster recovery.
Looking at the potential of hospital business that thrives on the purchasing power of the middle class and expansion of insurance coverage, private equities like CVC Capital, General Atlantic, TPG Growth, BPEA EQT, Advent International, Blackstone, Temasek, Arpwood Partners, Ontario Teachers’ Pension Plan Board (OTPP) invested to hold majority in hospitals like KIMS Kerala, Care Hospitals, Manipal Hospitals, Sterling, Sahyadri, etc. Blacksone owns an 80 per cent stake in KIMS Kerala and 73 per cent in Care Hospitals. On the other side, Arpwood Partners and OTPP have full ownership in Sterling and Sahyadri Hospitals. In Manipal Hospitals, Temasek holds 59 per cent ownership. CVC Capital Partners first invested in the cancer care chain, Healthcare Global (HCG), in 2020. Five years later, it sold the entire stake to KKR in a block deal. General Atlantic invested Rs 1,500 crore in ASG Eye Hospitals in 2022 and in Ujala Cygnus in April 2024 to raise its holding.
The hospital business is in for a major change as burgeoning middle-class families are more health-conscious, especially after the pandemic. They don’t mind spending on their healthcare. They are happy if the hospitals are professional and equipped with a modern disease management system. A good hospital can come up only with a big investment. In this context, is private equity investment in hospitals good or bad? Can’t the private investment ensure better hospital infrastructure, tech-equipped disease management capabilities, and life-saving technologies? The private investments have obvious aims of making a profit over a period. Does it mean people have to pay more by being vulnerable to the core interest of private equity investors? Is the medical care changing its landscape from a service to a pure business proposition? The answers to these questions and the assessment of advantages and disadvantages of premium hospitals, where the cost of treatment is naturally high, lie in judgment on the price of a life and the cost of a pocket. Life outweighs money. But when the money is lost along with the life medical business becomes a disgrace.
